The Best Performing Bond Market in Developed World Is…

By Amey Stone

If you guessed New Zealand, you’d be right.

The yield on its 10-year bond has has fallen 132 basis points (1.32%) this year compared to an 87 basis point drop in the benchmark U.S. Treasury note, writes Enzo Puntillo, head of fixed income for GAM Investment Management, in a new report titled, “New Zealand - a hidden gem for fixed income investors.”

And kiwi bonds still offer attractive yields and protection against an uncertain global economic environment, he finds.

New Zealand has the distinction of the 13 developed markets Puntillo tracks of having not only the biggest yield drop, but also the highest current yield. Its 10-year note still yields around 2.25%.

The United Kingdom’s bond yields, in comparison, have fallen almost as much — 1.22%. But the current 10-year rate is a paltry .79%.

Puntillo concludes:

New Zealand’s government debt is now one of the few remaining “risk free” markets with positive nominal as well as real yields and a central bank that is still able to physically cut interest rates in the future. We have been invested in New Zealand for quite some time now, but the fact that valuation is still one of the most attractive and it is still substantially under-owned in investor portfolios means its positive momentum could well continue for some time.

Amey Stone is Barron’s Income Investing blogger and Current Yield columnist. She was formerly a managing editor at CBS MoneyWatch, MSN Money and AOL DailyFinance. Her responsibilities included overseeing market coverage and personal finance topics. Prior to those roles, she was a senior writer at BusinessWeek where she authored the Street Wise column online and contributed to the magazine’s Inside Wall Street column. Topics covered included economics, corporate finance, Fed policy, municipal bonds, mutual funds and dividend investing. She co-authored King of Capital, a biography of Citigroup Chairman Sandy Weill. She is a graduate of Yale University and Columbia University’s Graduate School of Journalism.